Professional Documents
Culture Documents
March 2010
INTRODUCTION ......................................................................................................................... 1
I. CHAPTER 11 CASES....................................................................................................... 3
A. Use of Estate Assets............................................................................................... 3
B. Settlements............................................................................................................. 8
C. Relief from Automatic Stay Motions................................................................... 10
D. Retention of Professionals ................................................................................... 12
E. Case Administration Issues.................................................................................. 15
F. Miscellaneous ...................................................................................................... 17
i
INTRODUCTION
On September 16, 2008, the Debtors, Lehman Brothers Inc. (“LBI”), and
Barclays Capital Inc. (“Barclays”) entered into an asset purchase agreement (the “Asset
Purchase Agreement”) for the purchase and sale of LBI’s assets, three real properties,
including the Debtors’ headquarters, and two data centers (collectively, the “Barclays
Sale”).
On September 20, 2008, the Court approved the Barclays Sale and entered
concurrent orders to that effect in the Debtors’ chapter 11 cases (the “Chapter 11 Cases”)
and in the SIPA Proceeding.
On March 12, 2009, the Court granted Lehman Brothers Finance AG a/k/a
Lehman Brothers Finance SA (“LBF”), a wholly owned non-Debtor subsidiary of LBHI
subject to bankruptcy proceeding in Switzerland, recognition as a foreign main
proceeding under chapter 15 of the Bankruptcy Code and dismissed LBF’s pending
chapter 11 case.
1
The following Committee members were initially appointed: Wilmington Trust
Company; The Bank of New York Mellon; Shinsei Bank, Limited; Mizuho Corporate
Bank, Ltd.; The Royal Bank of Scotland, PLC; Metlife; and RR Donnelley & Sons.
Pursuant to the Third Amended Appointment of Official Committee of Unsecured
Creditors filed by the U.S. Trustee on February 9, 2010 [Docket No. 7034], the
Committee currently consists of the following seven members: Wilmington Trust
Company; The Bank of New York Mellon; Elliott Management Corp.; Mizuho Corporate
Bank, Ltd.; Metlife; The Vanguard Group Inc.; and U.S. Bank, National Association.
1
On May 22, 2009, the Court granted Lehman Brothers Bankhaus AG, a
wholly owned non-Debtor subsidiary of LBHI subject to an insolvency proceeding in
Germany, recognition as a foreign main proceeding under chapter 15 of the Bankruptcy
Code.
On September 24, 2009, the Court granted Lehman Re, Ltd., a wholly
owned non-Debtor subsidiary of LBHI subject to a compulsory winding up proceeding in
Bermuda, recognition as a foreign main proceeding under chapter 15 of the Bankruptcy
Code.
2
I. CHAPTER 11 CASES
(i) Debtors’ Motion Pursuant to Sections 105 and 363 of the Bankruptcy
Code and Federal Rule of Bankruptcy Procedure 9019 for an Order
Authorizing (i) Lehman Brothers Holdings Inc. to Enter into
Restructuring of Certain Loans Made to Subsidiaries of Hilton
Worldwide, Inc. (“Hilton”) and (ii) Lehman Commercial Paper Inc.
(“LCPI”) to Provide Consents Related Thereto [Docket No. 7232]
In October 2007, LBHI and certain other lenders (collectively, the “Lender
Syndicate”) provided affiliates of The Blackstone Group with $20.6 billion of financing
(the “Financing”) in connection with their acquisition of the common stock of Hilton.
The financing consisted of: (i) a senior mortgage loan (the “Mortgage Loan”) and (ii)
eleven tranches of mezzanine loans designated “A” through “K” (the “Mezzanine
Loans”).
Though the Financing was not in default, Hilton requested that the Lender
Syndicate agree to restructure certain of its terms. The proposed restructuring involved:
(a) a contribution by Hilton’s parent of $800 million to pay down a portion of the
Financing; (b) extensions of the maturity of the Mortgage Loan and the senior Mezzanine
Loans for up to an additional 2 years, and (c) the conversion of approximately $2 billion
of the Junior Mezzanine Loans to preferred equity (with 8% annual return). In return, the
Lender Syndicate would get extension fees and increased interest rates.
Since LBHI held only a small fraction of the total Financing, and the other
members of the Lender Syndicate previously indicated their support for the restructuring,
the Debtors believed that the modifications proposed for the Mortgage Loan and the
senior Mezzanine Loans could be implemented without LBHI’s vote. However, they
expected that the consent of all holders of Junior Mezzanine Loans would be required for
their conversion into preferred equity.
3
(ii) Debtors' Motion Pursuant to Section 363 of the Bankruptcy Code and
Bankruptcy Rule 6004 for Approval of Collateral Disposition
Agreement (the “Collateral Disposition Agreement”) with JPMorgan
Chase Bank, N.A. (“JPMorgan”), et al. [Docket No. 7269]
JPMorgan has asserted claims against the Debtors that, in the aggregate,
exceeded $29 billion prior to the application of proceeds generated from the liquidation
of collateral and setoffs by JPMorgan.
4
Disposition: The Court granted this motion. [Docket No. 7785]
In order to maintain their existence, the Cayman SPVs had to pay annual
registration fees (the “Government Fees”), as well as fees of their administrators and
legal representatives. The Registrar of Companies of the Cayman Islands assesses
quarterly penalties for the duration of a default in payment of the Government Fees and,
unless such fees are paid (typically, after 12 months have elapsed after the due date) may
strike a Cayman SPV from the Cayman Islands register of companies. To prevent this
result, LBSF sought authority to pay, on behalf of the Cayman SPVs, (i) $586,920 to
Maples Finance Limited as administrator, and (ii) $103,242 to the Cayman Islands law
firm, Maples and Calder, for legal services. Of these fees, $104,398 were for services
performed prepetition. Additionally, LBSF sought authorization to pay similar fees and
5
expenses of the Cayman SPVs in the future as necessary (upon notice to the Committee)
for as long as necessary to finalize settlements with the Cayman SPVs.
For purposes of Section 382 of the Tax Code, a corporation’s use of its
NOLs is limited in the event of an “ownership change.” An “ownership change” occurs
when the percentage of a corporation’s equity held by one or more “5% shareholders”
increases by more than 50 percent above such shareholders’ lowest stock ownership
(calculated over a statutorily prescribed testing period, usually three years). If there has
been an “ownership change” in connection with the implementation of a plan of
reorganization, the Debtors’ ability to use any NOLs existing on the plan effective date
would be limited, for each taxable year, to an amount equal to the product of (i) the
corporation’s value immediately after the ownership change and (ii) a published rate of
return (called the long-term tax-exempt rate). Such an ownership change will likely
occur if the Debtors’ reorganization involves the issuance or distribution of stock in
satisfaction of any of the Securities.
6
continuously during the 18 month period immediately prior to the bankruptcy filing or
(ii) the indebtedness arose in the ordinary course of the debtor’s business and the creditor
at all times held the beneficial interest in that indebtedness. To preserve maximum
flexibility to qualify for the (l)(5) Exception, debtors often seek and obtain certain
restrictions on the ability of parties to buy and sell claims: the goal being to prevent the
trades from causing the claim to cease being held by a “qualified creditor” for purposes
of the (l)(5) Exception.
• The Debtors may, in consultation with the Committee, (i) publish a notice
disclosing the filing of a plan and the potential issuance of a Sell-Down
Notice,2 (ii) identify the classes of Securities that are potentially subject to
the Sell-Down Notice, and (iii) identify the applicable Threshold
Amounts;
• Any person or entity that is or becomes a Substantial Securityholder must
file with the Court and serve on the Debtors and the Committee notice of
such status;
• If the Debtors determine that it is necessary to require the sale or transfer
of a portion of the Securities held by a Substantial Securityholder, the
Debtors must file a motion for approval of the issuance of a Sell-Down
Notice. The Substantial Securityholder must serve a notice of compliance
on the Debtors and the Committee. Failure to comply will result in
forfeiture of the right to receive stock attributable to the Securities that the
Substantial Securityholder was required to sell;
• The Debtors and Committee must receive notice of any transfer or
acquisition of Securities that would result in an increase in amount of
Securities held by a Substantial Securityholder, or an entity becoming a
Substantial Securityholder, which transfer or acquisition must be approved
by the Debtors in consultation with the Committee; and
• Any Substantial Securityholder effecting a sale of Securities pursuant to a
Sell-Down Notice must notify the acquirer of these Procedures.
2
“Sell-Down Notice” means a notice that any person or entity (each, a ”Substantial
Securityholder”) that beneficially owns, directly or indirectly, an aggregate dollar amount of
Securities that would entitle it to receive 4.5% or more of the reorganized Debtors’ equity (the
“Threshold Amount”) must sell, cause to sell or otherwise transfer all or a portion of its beneficial
ownership of Securities in excess of the Threshold Amount.
7
B. Settlements
Under the stipulation, the Unrelated Contracts would return to the status
quo ante between the relevant counterparty and LBHI, LBI or Aurora (as applicable) as if
they had never been listed on the Closing Date Schedules, and the of all parties would be
preserved. Furthermore, the inclusion of any Unrelated Contracts on the Closing Date
Schedules would not give rise to (i) any administrative expense claim or damage claim
against any of the Debtors, LBI or their respective estates, or (ii) any obligation or
liability of Barclays, including for payment of cure amounts, with respect to such
Unrelated Contracts.
(i) The Debtors would be authorized to settle Claims without prior approval of the
Court or any other party in interest whenever the aggregate amount to be allowed
for an individual Claim (the “Settlement Amount”) is equal to or less than $15
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million; provided, however, that if: (a) the Settlement Amount is (x) between $5
million and $15 million and (y) greater than the amount of the Scheduled Claim
or 75% of the amount listed on the proof of claim; (b) the Settlement Amount is
between $5 million and $15 million for a Claim that neither is a Scheduled Claim
nor has any amount listed on the proof of claim; (c) the proposed settlement
involves a person that the Debtors discover was employed by the Debtors on or
after September 15, 2007 or an entity unaffiliated with the Debtors for which a
person that the Debtors discover was employed by the Debtors on or after
September 15, 2007 is materially involved in the negotiations of the Settlement
Amount; (d) the proposed settlement involves an entity against which the Debtors
believe they have an outstanding claim pursuant to sections 547 or 548 of the
Bankruptcy Code in an amount greater than $5 million; or (e) the aggregate of (i)
the Settlement Amount and (ii) all Settlement Amounts in regards to the same
claimant in the 6-month period preceding the proposed settlement (the
“Aggregated Settlement Amount”), exceeds $15 million, the Debtors will submit
the proposed settlement to the Committee in accordance with clause (ii).
(ii) Where the proposed settlement (a) involves a Settlement Amount between $15
million and $75 million or (b) must be submitted to the Committee in accordance
with clause (i) above, the Debtors will submit the proposed settlement to the
Committee, together with certain other information (the “Settlement Summary”).
If the Committee timely objects, the Debtors may either (a) renegotiate the
settlement and submit a revised Settlement Summary to the Committee or (b) file
a motion with the Court seeking approval of the settlement. If there is no timely
objection made by the Committee, the Debtors may proceed with the settlement.
(iii) Where the Debtors agree to resolve a Claim for a Settlement Amount that is more
than $75 million, or if the Aggregated Settlement Amount is more than $75
million, the Debtors are required to seek the approval of this Court.
On a quarterly basis, the Debtors will file with the Court a report of all
settlements, which will set forth the names of the parties with whom the Debtors have
settled, the relevant proofs of claim numbers, the types of Claims, and the amounts for
which such Claims have been settled. On a monthly basis, the Debtors will provide to
counsel to the Committee a report of all settlements that the Debtors have entered
pursuant to clause (i), containing the same information.
(iii) Stipulation, Agreement and Order (i) Dismissing DnB Nor Bank
ASA’s (“DnB”) Appeal of the Bankruptcy Court’s Order Denying its
Motion for Allowance and Payment of Administrative Expense Claim
and Allowance of Setoff of Such Claims and (ii) Granting Other
Related Relief [Docket No. 7101]
9
DnB, LBHI and Lehman Brothers Commodities Inc. (“LBCS”) reached
agreement to settle DnB’s appeal (the “Appeal”) of the denial of its administrative
expense claim on the following terms:
• DnB will transfer (i) 7,966,031.34 NOK, plus all accrued interest to LBHI
and (ii) the current post-petition balance in the LBCS account
(approximately 10,242,642.79 NOK, plus all accrued interest to LBCS;
• DnB’s general unsecured non-priority claim in the amount of
$10,341,552.34 will be allowed against LBHI; and
• The Appeal will be dismissed with prejudice.
The amount due on the Notes varied, depending on whether it was the
amount due at maturity (the “Final Redemption Amount”) or an amount due upon
acceleration (the “Early Redemption Amount”). With respect to some series of Notes,
the Early Redemption Amount may have been greater than the Final Redemption
Amount. Acceleration required that Notices be sent to both LBT and LBHI by the
holders of 25% or more in principal amount of the applicable Notes.
LBT was declared bankrupt by a Dutch court on October 8, 2008, and the
bankruptcy trustee appointed by the Dutch court issued preliminary formulas for
calculating the maximum admissible amount (the “Admissible Amount”) of claims
against LBT on account of the Notes under the Dutch Bankruptcy Act.
According to the Dutch trustee, with respect to any Notes that were
scheduled to mature later than the first anniversary of the commencement of LBT’s
bankruptcy (the “First Anniversary”), the Admissible Amount was calculated by
discounting to present value, from the scheduled maturity date to the First Anniversary,
10
all future payments with respect to such Notes. However, with respect to any Notes that
are accelerated after the First Anniversary, the Admissible Amount would be calculated
by discounting to present value, from the date of acceleration to the First Anniversary, the
Early Redemption Amount of such Notes.
Disposition: The Court entered an agreed-to order that modified the automatic stay
permitting ML to issue the Notices solely for purposes of determining
ML’s claims against LBT in the Dutch Proceeding. [Docket No. 7691]
LBHI claimed that, as of the Petition Date, the FirstRand Account balance
was approximately ZAR 28.3 million, with additional post-petition transactions on the
Petition Date of ZAR 12.2 million. The Debtors alleged that between September 16,
2008 and November 18, 2009, an additional ZAR 552,000 (approximately $74,000) was
deposited in the FirstRand Account (the “Post-Petition Funds”).
• FirstRand would not take any action to restrict or prevent LBHI from
withdrawing any future postpetition deposits, credits or accrued interest in
the FirstRand Account;
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• LBHI would withdraw the motion; and
On March 11, 2009, the Court entered an Order Pursuant to Sections 105
and 364 of the Bankruptcy Code Authorizing the Debtors to Grant First Priority Liens in
Cash Collateral Posted in Connection with the Hedging Transactions the Debtors Enter
into Through Certain Futures and Prime Brokerage Accounts [Docket No. 3047] (the
“Hedging Order”).
The Hedging Order authorized the Debtors to grant first priority liens to
third parties on collateral (the “Collateral”) posted in connection with hedging
transactions (the “Hedging Transactions”) to reduce the risk associated with the market
fluctuations that could cause the value of certain prepetition derivatives contracts to
deteriorate.
Pursuant to the stipulation, LBSF and Nomura were seeking a court order
modifying the automatic stay for the limited purpose of permitting Nomura to exercise its
rights with respect to the Collateral posted in connection with the Hedging Transactions.
D. Retention of Professionals
The transition services agreement among the Debtors and Barclays (the
“TSA”), pursuant to which the Debtors had access to the former Lehman data processing
and workflow automation support services (the “Services”) was set to expire on March
22, 2010. The Debtors claimed that they required access to the Services beyond such
date and on August 5, 2009, with the Court’s approval, they entered into an interim
consulting agreement with Omnium, which was intended to allow the Debtors to
transition the Services to a third party vendor. The Debtors represented that such
outsourcing could save the estates an average of $13,500,000 annually through 2011.
12
By this motion, the Debtors sought authority to enter into a master
services agreement (the “MSA”) to formalize a more permanent arrangement with
Omnium. The MSA provided that Omnium would bill the Debtors at an hourly rate that
range from $225 an hour for staff members to $750 for managing directors during the
implementation phase, and from $175 to $500 after the initial transition. In addition,
Omnium and its employees and agents will be reimbursed for all reasonable expenses.
The Debtors also agreed to indemnify Omnium, except for claims arising from
Omnium’s negligence, gross negligence, willful misconduct or failure to perform its
obligations under the MSA. In addition, the extent of indemnification liability over any
rolling 12 month period will be limited to the amount equal to the charges paid by LBHI
to Omnium for the 12 month period immediately preceding the date the relevant claim
first arises (however, this limitation does not apply to damages that result from the
violation of confidentiality agreements, fraud, gross negligence or willful misconduct,
including the willful or grossly negligent violation of laws).
On August 25, 2009, the Court entered an order (the “Retention Order”)
authorizing Bingham’s retention as special tax counsel to the Debtors. By this motion,
the Debtors sought to expand Bingham’s retention to include services related to certain
government investigations of tax-related matters arising from transactions between the
Debtors and foreign counterparties nunc pro tunc to December 7, 2009.
13
The Debtors sought entry of an order to employ and retain Kleyr Grasso, a
Luxembourg law firm, as special counsel to the Debtors, effective nunc pro tunc to June
1, 2009 in relation to issues/questions that arose, or may arise, in relation to the Debtors’
Luxembourg affiliates (the “Luxembourg Matters”).
The hourly billing rates for Kleyr Grasso professionals expected to spend
significant time on the Luxembourg Matters are €385 for partners, €275 for senior
associates, €235 for associates and €175 for junior associates.
The Debtors sought to retain Deloitte to provide the following services: (i)
analysis of certain sales and use tax filings for the years 2004-2008; (ii) identification of
instances of overpayment of either sales or use taxes by the Debtors; (iii) preparation of
claims for refund of any identified overpayments; (iv) interacting with the appropriate
state and local taxing authorities; (v) assisting the Debtors in their filing of a zero fixed
base percentage with respect to their claim of a research and development credit pursuant
to Internal Revenue Code Section 41; (vi) assistance with tax matters related to meal and
entertainment expenditures for 2008; (vii) assistance with certain matters on which
Deloitte has previously advised the Debtors, including state income sourcing issues
arising from the Debtors’ principal trading activities; (viii) the maintenance (from a tax
perspective) of any licenses, registrations, or certificates with respect to a particular
business line; (ix) tax matters related to FIN 48 issued by the Financial Accounting
Standards Board; (x) tax matters related to specific transactions for which Deloitte had
previously advised the Debtors; and (xi) other tax services as requested by the Debtors
and agreed to by Deloitte.
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Deloitte would be required to file fee applications and otherwise comply with the same
requirements and procedures relating to compensation as other professionals retained in
the Chapter 11 Cases.
The Debtors requested that the OCP Order be amended such that a new
sub-category of ordinary course professionals be established (the “De Minimis OCPs”)
that would not be required to file an Ordinary Course Professional Affidavit or a
Retention Questionnaire (collectively, the “OCP Documentation”).
The OCP Order provided that the Debtors were authorized to retain OCPs
whose services did not result in fees and disbursements in excess of $150,000 per month
and $1 million in the aggregate for the period from retention through the conclusion of
the Chapter 11 Cases (the “Chapter 11 Period”) without filing individual retention
applications, and to compensate such OCPs without their filing formal fee applications.
The Debtors represented that they anticipate the need to retain at least 500
additional OCPs, primarily in connection with liquidating real estate assets throughout
the United States. The Debtors submitted that requiring each such OCP to file the OCP
Documentation would be impractical, costly, and administratively burdensome.
Accordingly, the Debtors requested that the OCP Order be amended such
that the OCPs whose services do not result in fees and disbursements in excess of
$30,000 per month and $150,000 in the aggregate for the Chapter 11 Period may be
retained and compensated without requiring such De Minimis OCPs to file the OCP
Documentation.
(i) Motion of the Debtors and Certain Creditors to Clarify or Amend the
Debtors' Supplemental Notice and the Bar Date Order with Respect
to Claims Relating to the Lehman Programs Securities Issued by
LBHI [Docket No. 6858]
Credit Suisse AG, Goldman, Sachs & Co., Merrill Lynch & Co. Inc.,
Morgan Stanley & Co. and The Royal Bank of Scotland plc (the “Moving Creditors”)
have asserted that an ambiguity exists in the Court’s Order Establishing the Deadline for
15
Filing Proofs of Claim, Approving the Form and Manner of Notice Thereof and
Approving the Proof of Claim Form (the “Bar Date Order”) and related notices with
respect to the treatment of the Lehman Programs Securities Issued by LBHI (the “LP
Securities”).
(ii) Motion of Lehman Brothers Holdings Inc. and its Affiliated Debtors
for an Order Extending the Time to File a Disclosure Statement
Pursuant to Section 1125 of the Bankruptcy Code [Docket No. 7355]
While the Debtors acknowledged that, under the revised Bankruptcy Code
section 1121, they were not entitled to any further extensions of the exclusive period to
file their plan of reorganization, which was to expire on March 15, 2010, they asserted
that filing the disclosure statement with respect to such plan at the same time was not
possible or productive.
Given the size and complexity of the Chapter 11 Cases and the numerous
contingencies that needed to be resolved, and numerous constituencies with which the
Debtors must negotiate, the Debtors anticipated that any plan they may file will need to
be modified and amended in various respects. In addition, the Debtors stated that, not
having had access to the Examiner’s report, they could not anticipate what changes to the
plan and the disclosure statement may be required once they have had a chance to review
this document.
16
Disposition: The Court granted this motion. [Docket No. 7696]
The previously approved [Docket No. 4021] procedures for sale and
abandonment of de minimis assets (the “Existing Procedures”) allow the Debtors to (a)
sell assets with a value under $300,000 without notice to any parties (the “Non-Notice
Assets”); and (b) sell assets with a value greater than $300,000 but less than $2,000,000
upon ten days notice to certain parties, including the Committee (the “Noticed Assets”).
The Existing Procedures also require the Debtors to file monthly reports with the Court
regarding the Noticed Assets.
Additionally, the Debtors claimed that the market for many Properties is
so depressed that sales would not yield reasonable returns. For such situations, the
Debtors sought authority to enter into short-term leases of up to one year.
F. Miscellaneous
17
Directors Designated by TCW Asset Management Company; (III) the
Transfer of the Rights to manage Lehman Brothers ABS Enhanced
Libor, Ltd.’s Portfolio to TCW Asset Management Company; and
(IV) the Exchange of Units in Lehman Brothers ABS Enhanced Libor
Fund for Shared in Lehman Brothers ABS Enhanced Libor, Ltd.
[Docket No. 6811]
Due to the financial crisis, in March 2009, the Master Fund directors
decided to terminate the investment activities of the Master Fund and effect an orderly
liquidation of its assets. However, USB requested that NBFI not liquidate the Master
Fund and instead have its assets actively managed. The Noteholders then selected TCW
Asset Management Company (“TCW”) as the replacement Master Fund investment
manager.
Elliot noted that, while it owed certain fiduciary duties to the Debtors’
general unsecured creditors, it also owed a fiduciary duty to maximize returns to its
clients through trading securities. Thus, if Elliot were barred from trading the Covered
18
Claims during the pendency of the Chapter 11 Cases, it would risk losing beneficial
investment opportunities for itself and its clients, and, thus, could breached its fiduciary
duty to its clients. Alternatively, if Elliot is compelled to resign from the Committee
because of its inability to trade for the benefit of itself and its clients, its interests may be
compromised by virtue of taking a less active role in the reorganization process.
On the other hand, the Examiner acknowledged that the Report should be
eventually publicly available, and so he filed this motion in which he asked the Court to
establish proper procedures for the unsealing of the Report. The proposed procedures
provided that: (i) the Protected Parties could file objections to the unsealing of the
Report, and such objections must include a detailed description of the basis for the claim
of privilege or confidentiality; (ii) the Protected Parties that do not file a timely objection
are deemed to have consented to the unsealing of the Report; (iii) the Examiner will work
to resolve any timely objections, and will file responses to the unresolved objections; (iv)
a hearing on the unresolved objections will be held; and (v) once all objections are
resolved, the Report will be unsealed, provided that it will be redacted to the extent that
any Protected Information is found by the Court to be entitled to nondisclosure.
19
obtaining the consent of 100 percent of the Protected Parties, the Examiner would not be
able to unseal the Report on his own.
A. Settlements
(i) Stipulation and Order in Connection with the Return of Certain Cash
and Securities and the Final Closeout of Certain Outstanding Loans
between Lehman Brothers Inc. and National Bank Financial Inc.
(“NFB”) [Docket No. 2776]
LBI and NBF agreed that various loans between the parties would be
closed out, collateral would be returned to LBI, and NBF would pay LBI a sum of $CAD
1,330,094.00.
B. Administrative Matters
The SIPA Trustee filed this motion to begin the process of fixing, or
reasonably estimating, the amount of customer property (“Customer Property”) to be
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made available on a priority basis to satisfy customer claims. The SIPA Trustee noted
that under SIPA, customer property includes:
The SIPA definition also includes any other property which, upon
compliance with applicable laws, rules and regulations, would not have been set aside or
held for the benefit of customers. Thus, to the extent that LBI had not maintained cash
and securities in compliance with Rule 15c3-3 prior to the Filing Date, the SIPA Trustee
is required to allocate property to remedy such non-compliance.
The SIPA Trustee stated that the majority of the property under his control
fell under the first four of the above categories. Additionally, the SIPA Trustee alleged
that there were significant lapses in LBI’s compliance with the customer protection
requirements, which allegedly required augmenting the customer estate by at least $4.9
billion. The SIPA Trustee asserted that the following items represented shortfalls in
LBI’s compliance with its obligations to set aside or hold property for the benefit of
customers and justified treatment and allocation as part of Customer Property:
The SIPA Trustee requested that the Court enter an order (i) approving the
SIPA Trustee’s determinations regarding the assets identified as Customer Property; (ii)
authorizing the SIPA Trustee to allocate any property of LBI that the SIPA Trustee
determined would, upon compliance with applicable laws, rules and regulations have
been set aside or held for the benefit of customers to prevent shortfalls, and (iii)
21
authorizing the SIPA Trustee to make interim distributions of the Customer Property to
satisfy allowed net equity claims of LBI customers.
Disposition: The Court granted only part of the relief requested by the SIPA Trustee.
The Court ordered that only the following items represented shortfalls in
LBI’s compliance with its obligations and justified treatment and
allocation as having equivalent value as Customer Property within the
meaning of SIPA: (i) FID Accounts; (ii) account coding errors; (iii)
assets subject to the administration of LBIE; and (iv) customer property
exposed to seizure during pre-filing date withdrawals. The Court also
ordered that the SIPA Trustee make an application for and obtain the
Court’s approval prior to making future distributions of Customer
Property (including any property of LBI allocated as Customer Property
pursuant to the order). [Docket No. 2743]
Due to the number of new and pending requests for the return of
misdirected wire transfers, the SIPA Trustee sought to enhance the efficiency of the
return process by amending the procedures that are currently in place and adding new
procedures.
• Allowing the SIPA Trustee to charge a service fee for effectuating returns
equal to 1% of the return amount up to a maximum surcharge of $5,000
per return;
• Allowing the SIPA Trustee to preserve and effectuate setoff rights against
the amount of any returns due to parties who are indebted to LBI.
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Commenced by Trustee Pursuant to 11 U.S.C. 544, 547, 548 and 550
[Docket No. 2554]
• All fact discovery shall be completed 210 days after the date the answer is
filed;
• All expert discovery shall be concluded within 100 days after the deadline
for fact discovery; and
• Prior to the close of fact discovery, no motions may be made without the
Court’s prior approval, which may be sought, on notice to other parties to
the Action, via telephone conference with the Court, provided however,
that (i) motions for default judgment may be made without the Court’s
prior approval, and (ii) routine procedural motions (e.g., motions to
intervene or to amend a pleading) may be made without the Court’s prior
approval only if the moving party obtains the consent of all other parties to
the action.
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• For the settlement of any Avoidance Proceeding where the settlement
amount is $2,500,000 or greater, the SIPA Trustee will prepare a
stipulation and order and seek Court approval of the settlement by notice
of presentment and such stipulation and order will be deemed to meet all
requirements of Bankruptcy Rule 9019.
The SIPA Trustee sought authorization to enter into the TSA, pursuant to
which Barclays agreed to provide the SIPA Trustee with access to LBI’s books and
records, which it acquired in the Barclays Sale, in order to facilitate the orderly
liquidation of LBI.
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